ABR-10346.pdf

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Archives of Business Research – Vol. 9, No. 6

Publication Date: June 25, 2021

DOI:10.14738/abr.96.10346. Pathmananathan, P. R., & Aseh, K. (2021). Identying Factors That Influences Fradulences in Non-Life Insurance Companies. Archives

of Business Research, 9(6). 93-102.

Services for Science and Education – United Kingdom

Identying Factors That Influences Fradulences in Non-Life

Insurance Companies

P. Ravindran Pathmananathan

Unies Group

Khairi Aseh

Unies Group

ABSTRACT

Insurance fraud is the most common form of fraud in the world, aside from tax

evasion. By its very existence, the insurance industry is prone to deception. Basic

income levels in Vietnam have a tendency to steadily rise as a result of improving

socioeconomic conditions. As a result, the need for citizen security has increased

and become more diverse.The aim of this study is to study the predictor/s of anti- insurance fraud among non-insurer companies in Vietnam. This study was

conducted using a questionnaire that was completed by 51 employees who are

currently working in the 11 non-life insurance company in Vietnam. It can be

concluded that there exists a significant relationship between all the four

independent variables which are namely external regulations, public context,

management functions as well as underwriting guidance.

Keywords: Insurance fraud, external regulations, public context, management function,

Vietnam

INTRODUCTION

Insurance fraud of all kinds is on the rise, and its frequency has risen by roughly 30% in many

cases compared to previous years (Burnham,2008). According to a study Submitted to the

Pennsylvania Insurance Fraud Prevention Authority, the number of fraud claims filed with

insurance providers rose by 33% in the first decade of the twenty-first century, with auto

insurance accounting for 72 percent of fraudulent claims (Burnham, 2008).

According to Burnham (2008), insurance firms paid out an estimated $28.4 million in

restitution as a result of fraud in 2008. In 2008 too, 4,000 people were arrested as a result of

20,911 insurance fraud prosecutions, resulting in $1.9 million in civil fines. These investigations

have resulted in the avoidance of over $102 million in possible victim property loss as a result

of fraud, according to the author (Burnham, 2008). It is estimated that up to 10% and 20% of

all car insurance and home owners insurance claims, respectively, are fraudulent (Burham,

2008).

Insurance Fraud Overview

Insurance is a risk-management scheme that necessitates the retention of liquid assets in the

form of reserve funds, which can then be used to pay loss claims. Insurance premiums provide

a constant and large supply of cash to insurance firms. Consistent cash flow is a valuable

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Archives of Business Research (ABR) Vol. 9, Issue 6, June-2021

Services for Science and Education – United Kingdom

economic resource that can be quickly diverted. Insurance firms are tempting targets for

takeover and loot schemes because of their large stockpiles of liquid assets (Glink,2009).

Insurance Fraud In Vietnam

Basic income levels in Vietnam have a tendency to steadily rise as a result of improving

socioeconomic conditions. As a result, the need for citizen security has increased and become

more diverse. Purchasing insurance is one of the most important safety strategies, and car

insurance is one of the insurance products. According to the Review of Finance (ROF) 2017, the

demand for non-life insurance in general, and vehicle insurance in particular, has expanded

rapidly, but at a modest scale, with insurance premiums as a percentage of GDP of less than 2%.

(while the rate in other countries by region is 7-8 percent ).

Insurance Fraud (Global)

Insurance fraud costs the United States more than $80 billion per year (Taylor, 2014). Fraud

comes in several types, and according to a report conducted by the North Carolina Department

of Insurance (2011), at least one tenth of all auto and homeowners insurance claims are false.

This level of fraud incurs costs in the form of higher premiums for customers and increased

operating costs for insurance providers, totaling billions of dollars for insurers (AIPSO, 2009).

RESEARCH OBJECTIVE

• To profile the respondents’ characteristics among the non-insurer companies in

Vietnam

• To examine the perceived external regulations aspect among the non-insurer companies

in Vietnam

• To examine the perceived public context aspect among the non-insurer companies in

Vietnam

• To examine the perceived management functions aspect among the non-insurer

companies in Vietnam

• To examine the perceived underwriting guidance aspect among the non-insurer

companies in Vietnam

LITERATURE REVIEW

External Regulations

Vietnam's economy continues to improve. Many Vietnamese have already been brought out of

poverty as a result of economic development. Simultaneously, the middle class is growing. WTO

membership has provided Vietnam with access to both foreign markets and capital, as well as

strengthened Vietnamese businesses, especially insurance businesses, through increased

competition.

Many foreign insurance companies (particularly in the life segment) have offices in Vietnam

and regard the country as a natural extension of their regional or global operations. New

products are in the works. The creation of agency networks is underway.Local businesses have

usually displayed more price restraint than their counterparts elsewhere in the area in the non- life market. In Vietnam, motor insurance, this is mostly a thankless and profitless line in

emerging markets, accounts for around a third of non-life premiums written.

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Pathmananathan, P. R., & Aseh, K. (2021). Identying Factors That Influences Fradulences in Non-Life Insurance Companies. Archives of Business

Research, 9(6). 93-102.

URL: http://dx.doi.org/10.14738/abr.96.10346

Public Context

Anti-fraud procedures are often viewed differently by a diverse group of people in various

public contexts (Secovnie, 2008). Customers for insurance fall into a variety of categories,

which results in a dynamic level of response to anti-fraud procedures.Customers' history,

including their place of birth, education, and wages, all play a role in deciding their degree of

interest in insurance claim fraud (Glink, 2009).

Management Functions

Companies' management roles also assigned responsibility for handling insurance fraud to

each of the company's hierarchy. The Board of Directors and Audit Committee play an

important role in anti-fraud efforts across the insurance industry (Rice, 2008).The Board of

Directors is made up of all of the company's directors, and it serves as the company's highest

decision-making and policy-making body.According to Rice (2009)'s research, the executive

committee and division managers play an important role in anti-fraud procedures. Internal

audit teams are crucial in monitoring and overseeing the execution of anti-fraud procedures.

(2009, Glink)

Underwriting Guidance

Underwriting guidelines is a practical approach to developing a successful anti-fraud procedure

in which the authorities as well as the association of insurers have specific guidance that

standardises the underwriting process for insuring companies. This can include software that

keeps track of customer records and claims history, which is useful in detecting fraud.

Insurance fraud is estimated to cost the insurance industry billions of dollars per year, and it

has thus become a major concern for both insurers and the general public (Glink, 2009; Rice,

2008; Scafidi, 2010; Scott, 2010; Secovnie, 2008; Tennyson, 2008).Insurance evasion costs

customers up to $400 in additional insurance premiums a year in the case of car insurance

(Auto Insurance Plan Service Office (AIPSO), 2009).

METHODOLOGY

For this study, 51 employees have participated who are currently working in the 11 non-life

insurance company in Vietnam. The selection of sample from the pool of 11 companies, which

are occupied up to 80% non-life market shares in Vietnam by convenient sampling method

from total of 29 non-life insurers companies in Vietnam. For this particular study, the data

gathered by distributing questionnaires to employees.

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Archives of Business Research (ABR) Vol. 9, Issue 6, June-2021

Services for Science and Education – United Kingdom

RESULT

Descriptive Statistic

Frequency (N) Percentage %

Gender

Male

Female

92.2%

7.8%

Age group

21-30

31-40

41-50

51-60

11.8%

60.8%

23.5%

3.9%

Education Level (Highest degree)

University/College

Master

74.5%

25.5%

Insurance company which you work in

PTI

UIC

MIC

BIC

Baolong

BSH

Liberty

15.7%

19.6%

23.5%

19.6%

15.7%

3.9%

Your department

Board of director

Underwriting Department

Los Surveyor Department

Claim Department

Internal Audit

Operation Department

9.8%

29.4%

41.2%

3.9%

5.9%

External regulations – regulations to insurance frauds

Table 4.2 Itemized Questions for External Regulations, in Percentage

No Statements 1 2 3 4 5

1.1

1.2

1.3

1.4

1.5

Criminal Code 2015 has created the legal

corridor for anti frauds in insurance.

By-law documents relating to anti-frauds

are clear and easy to follow.

You know well the penalty by the amount

of fine and the number of years of

imprisonment stipulated for insurance

frauds.

The communication and Media have

broasdcasted criminal code relating to

insurance frauds to insurance participants.

People are well aware of the relation

between Crimial Penalty and Insurance

frauds.

5.9%

7.8%

9.8%

17.6%

25.5%

7.8%

17.6

2.0%

37.3%

47.1%

33.3%

43.1%

27.5%

29.4%

17.6%

37.3%

29.4%

45.1%

9.8%

5.9%

15.7%

2.0%

15.7%

5.9%

3.9%

*Note: 1: Strongly Disagree, 2: Disagree, 3: Neutral, 4: Agree, 5: Strongly Disagree

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Pathmananathan, P. R., & Aseh, K. (2021). Identying Factors That Influences Fradulences in Non-Life Insurance Companies. Archives of Business

Research, 9(6). 93-102.

URL: http://dx.doi.org/10.14738/abr.96.10346

Public context impacts in insurance frauds

Itemized Questions for Public context, in Percentage

No Statements 1 2 3 4 5

2.1

2.2

2.3

2.4

2.5

Customers in city have higher interests in

insurance claim frauds rather than

customers in countryside.

Customers with higher income normally

have less interests in insurance claim

frauds.

Customers with higher education

normally have less interests in insurance

claim frauds.

Regression circle of business is also a

reason leading to insurance frauds.

Culture and social behaviors could be a

reason leading to insurance frauds.

7.8%

11.8%

7.8%

5.9%

0.0%

13.7%

37.3%

31.4%

13.7%

9.8%

21.6%

35.3%

31.4%

21.6%

31.4%

9.8%

21.6%

37.3%

52.9%

25.5%

5.9%

3.9%

11.8%

15.7%

*Note: 1: Strongly Disagree, 2: Disagree, 3: Neutral, 4: Agree, 5: Strongly Disagree

Management functions impacts in insurance frauds

Itemized Questions for Management functions, in Percentage

No Statements 1 2 3 4 5

3.1

3.2

3.3

3.4

3.5

Your company has ordained the

responsibility to each of company's hierachy

in managing insurance frauds.

Board of Directors and Audit Committee play

an important role in anti fraud.

Executive committee and branches'

managers play an important role in anti

fraud.

Internal Audit team play an important role in

controlling and supervising the

implementation of anti fraudulent

procedures.

It is necessary to have an award policy to

managers in automobile insurance claim

anti-frauds.

0.0%

2.0%

3.9%

0.0%

17.6%

13.7%

11.8%

7.8%

21.6%

37.3%

13.7%

33.3%

17.6%

41.2%

33.3%

43.1%

39.2%

43.1%

19.6%

13.7%

29.4%

15.7%

31.4%

*Note: 1: Strongly Disagree, 2: Disagree, 3: Neutral, 4: Agree, 5: Strongly Disagree